A personal loan helps spread the cost of borrowing over several months or years. Applying for a loan is often a straightforward process, but it helps to know the different steps and what to expect.

In this guide, we’ll run through what you need to know about personal loans, how the application process works and how the length of loan and interest rates affect what you pay back.

What is a personal loan?

A personal loan is a fixed amount of money you borrow from a lender. When you take out a personal loan, you agree certain details with the lender about how you will pay it back. This covers the length of the loan term and the interest rate, with both impacting how much you’ll pay back in total and the cost of your monthly repayments.

For example, a short term loan (say a 12 month loan) will often have a higher interest rate than a longer term loan. Your monthly repayments will likely be bigger too.

By choosing a longer term loan, you’ll likely be offered a lower interest rate and will have lower monthly repayments. But you will pay more in interest over the full length of a long term loan compared to a short term loan.

At Asda Money, we work with a carefully selected panel of trusted UK lenders that offer loans from £1,000 to £25,000 across one to seven years.

Should I apply for a loan?

The first thing to consider when applying for a loan is whether you’ll be able to afford the monthly repayments. Our helpful personal loan calculator will help you understand what your potential monthly repayments may look like for different lengths of loans.

People take out personal loans for a variety of reasons, but it’s usually to make a one-off lump sum payment. This could be to pay for all or some of your wedding costs, to buy a new car or make home improvements or renovations. You may even decide to take out a personal loan to help pay for your dream holiday.

Some people choose to use a personal loan to consolidate existing debt. If you have debt like credit cards, overdrafts or store credit, a debt consolidation loan* helps you roll it into one monthly outgoing. It can help reduce the amount you pay each month and can make things easier to manage with one monthly payment.

*Please remember that by consolidating existing borrowing, you may be extending the term of the debt and increasing the total amount you repay.

Eligibility and affordability

When applying for a loan, you first need to be eligible to do so. At Asda Money, we first run an eligibility check on your personal details before providing you with suitable loan offers from across our panel of lenders. Each lender makes decisions in slightly different ways, but some of the main criteria are:

• Be over 18
• Be a UK resident with a fixed address
• Have a consistent, regular, and provable income
• Have an email address and phone number

During the eligibility check, we run a soft credit search that doesn’t show up on your credit file. If you decide to proceed with an offer from one of the lenders, they will complete a hard search on your credit file. The point at which they complete the hard search varies from lender to lender.

The lender will run an affordability check, which focuses on the following:

• Your employment status: Lenders will check whether you are employed or self-employed, and will want to know how regular your income is.
• Monthly income: Lenders will look at how much money you bring in before tax as well as your take-home pay each month.
• Any extra income: This could be benefits, child support, freelance work, pensions or investments. Lenders will want clarity on exactly how much income you have coming in each month.
• Monthly household expenses: Here lenders look at your outgoings each month which may include credit cards, loans, car payments and mobile phone payments. They will look at your household bills too and are keen to understand any significant monthly expenses, so for example, they may ask how many dependants you have and what age they are.
• General expenses: Some lenders may even want to know about monthly spending on things like clothes, going out, subscriptions, memberships, and holidays.

Finally, they will also look at your credit score. Your credit score shows lenders how well you’ve borrowed money in the past. If you’ve borrowed through a loan or credit card previously and kept up with your monthly repayments, this shows a history of responsible borrowing. A good credit score means lenders view you as less of a risk and could be the difference between a yes or no on a loan application. You’re also more likely to be offered lower interest rates with a stronger credit score.

Before you apply for a loan, you can check your credit score with one of the three main credit reference agencies. And there are quick things you can do to give your score a boost, including:

• Signing up for the electoral roll. This helps lenders confirm your address.
• Checking for errors on your account and removing them.
• Using a credit builder credit card, like our Asda Money Select Credit Card.
• Closing any inactive old accounts.
• Monitoring your credit file for any fraudulent activity.

You may still be able to apply for a loan with bad credit, but there will likely be a smaller pool of lenders willing to lend to you. Often this will be at a higher interest rate too.

If you can secure a personal loan with bad credit, it can help boost your credit score over time. Meeting your monthly repayments demonstrates responsible borrowing which can have a positive impact on your credit score.

How long can I take to repay the loan?

At Asda Money, the lenders on our panel offer loans from one to seven years from £1,000 up to £25,000. The length of the loan you apply for is up to you.

Just remember that the longer the term, the more you’ll pay in interest overall. But choosing a shorter loan can mean higher interest rates and bigger monthly payments. Use our personal loan calculator to see how the length of a loan and the interest rate can impact your monthly repayments.

Comparing loans

It’s important to compare a range of loans to understand the best possible loan for your needs. At Asda Money, after one simple eligibility check we’ll show you all the available loans from across our lender panel that match your requirements.

This gives you the chance to evaluate the different interest rates and loan terms on offer and understand how each could fit your personal circumstances. Once you’ve decided on the right loan for you, you can then go on to a full application with the lender or simply take time to consider your options.

Why choose Asda Money?

Working alongside our partner Aro, we provide you with access to a trusted panel of UK lenders.

Simply check your eligibility today, with no impact on your credit score, and you receive multiple offers to compare and choose from.

Our wide panel of trusted UK lenders provide offers based on your personal credit situation and are tailored to your borrowing needs.  You’ll then see these offers listed in a clear and easy to understand way, so you can make the right decision for you. You can then go on to complete a full application with your chosen lender.

If no offers are available, you can access our free impartial Financial Support Service to help you understand your options.

I’ve applied: What happens now?

You’ve chosen to proceed to one of the loan offers presented to you.  You’ll continue online to that lender's website and view your final documents confirming all the details regarding your loan choice.  You need to check these carefully and ensure that you understand them clearly.

Depending on your chosen lender, the loan funds could be in your bank account within minutes, however, some lenders may need to confirm your application details further.  Most lenders ensure funds are in your account within 24 hours.

Once you receive the funds into your chosen bank account, you have a 14 day ‘cooling off’ period.  This means that you can return the funds within this period if you change your mind, however, fees may apply, and you must check your documents carefully to ensure you fully understand this process.

How Asda can help

Not only do we work with a panel of trusted UK lenders to help you find the right personal loan for your needs. But we also offer free, impartial advice and support on all things money through our Financial Support.

Whether you need help understanding terms with our jargon buster or you want to check your financial health, we’re here to help.